1. Chapter 11: Taxation and Social Accounting
Contemporary issues in Social Accounting

2. Chapter Structure Introduction to Taxation and Social Accounting
Taxation and Tax Systems
Taxation and Social Responsibility
Accountability and Transparency
Future Directions

3. Tax and Social Accounting
Is tax “an essential element in the social contract between government and citizens” or an unpleasant intervention by government which should be minimised?

4. Taxpayers Taxation is paid by
Organisations
Individuals
Tax is collected and utilised by the Government

5. Accountability and Transparency
Governments create and enforce tax systems
Taxpayers are accountable for the tax they pay
Taxation behaviours should be transparent

6. Taxation and Tax Systems
What is taxation?
Objectives of taxation
Tax systems
Taxation bases and categories
Taxation expenditures / incentives

7. What is Taxation?
“A compulsory levy, imposed by government or other tax raising body, on income, expenditure, wealth or people, for which the taxpayer receives nothing specific in return” (Lymer and Oats, 2015)

8. Is taxation always compulsory?
Are there alternative perspectives?
Is there any voluntary element to taxation?

9. Objectives of Taxation
Reclaiming money the government has spent into the economy for re-use
Ratifying the value of money
Reorganising the economy
Redistributing income and wealth
Repricing goods and services considered to be incorrectly priced by the market such as tobacco, alcohol, carbon emissions etc
Raising representation
(Murphy, 2016, p.77)

10. Tax Systems
A tax system encompasses who and what is taxed, at what rate, how it is collected, and how compliance is assured
Taxes interact with each other
Taxes can distort consumer choices and behaviours (efficiency ‘losses’)

11. Taxation policies Conflicting interests Complexities versus simplicity
Society needs
Public and private sector
Complexities versus simplicity
Impact on monies raised and compliance
Budgetary requirements
Compliance

12. Appropriate tax system
Four ‘canons of taxation’
Proportional
Certain, not arbitrary
Convenient
Efficient

13. Principles and objectives
Achieving both objectives and good principles are important
Factors to consider
Properly targeted
Regularly reviewed
Competitive
System design
Purpose of taxation

14. ICAEW Ten Tenets Taxation systems require improvement
Systems should be:
Statutory
Certain
Simple
Easy to collect and calculate
Properly targeted
Constant
Subject to proper consultation
Regularly reviewed
Fair and reasonable
Competitive

15. Taxation bases and categories
A base upon which tax is calculated or charged
Taxation base qualities
Clear and distinct
Measurable and unavoidable

16. OECD key sources of taxation
Income and profits
Compulsory social security contributions paid to general government
Payroll and workforce (none for UK)
Property
Goods and Services
Other

17. Taxation and Social Accountability
Taxation on profits
Payroll / Social Security taxes
Property taxes
Environmental taxes
Other taxes
Is there a link between visibility of taxes and behaviour?

18. Taxation on profits Profits generated by businesses
Business structure and taxation rules
Classification of profits
Business expenses
Incentives and savings available to different organisation structures
Fair incentives

19. Payroll / Social Security taxes
Classification of employees
Employees versus contractors
Location of employees

20. Property taxes Taxation on purchase of property
Taxation on disposal of property
Definitions of property
Land & Buildings taxations
Land & Buildings Transaction Tax (LBTT)
Stamp Duty

21. Environmental taxes Carbon emissions Landfill Wastage
‘Green’ incentives
Renewable and energy efficient incentives

22. Other Taxes VAT (Value Added Tax) Service / sales tax Local taxation
Import / export duties
Insurance premium tax

23. Tax Expenditures / Incentives
What isn’t taxed
Structural incentives – excluding items from tax base, setting a zero or reduced rate of tax
Ad hoc incentives – waivers of tax on certain types of income, temporary increases in relief for expenditure
Tax expenditure – cost to the government of the tax foregone by the use of the incentives
Difficult to measure the costs and benefits

24. Tax behaviours
Tax compliance
Tax avoidance
Tax evasion

25. Tax Compliance Compliant with requirements Definition of requirements
‘Reasonable’ tax planning
Legal reliefs

26. Tax Avoidance Advanced tax planning
Utilisation of legal loop-holes or schemes
Moderate to aggressive utilisation of law
Potential significant tax savings
Socially acceptable?
‘Letter of the law’ versus the ‘spirit of the law’

27. Tax Evasion Aggressive tax planning extending beyond laws
Deliberate non-compliance
Manipulation of bases and liabilities
Fraud and corruption
Illegal activities

28. National Tax Differences
Similar for similar economies?
Differences for low income countries:
Tax revenues a lower % of GDP
Traditional reliance on international trade tariffs
Less sophisticated structures for collection / compliance

29. Tax in the Global Digital Economy
What to tax and where?
Whose tax rules apply?
Intangibles can be ‘located’ anywhere
Group structures increasingly complex
Inter-company transactions can be manipulated

30. Tax Havens
Jurisdictions with very low levels of tax and often high levels of secrecy
Little or no actual economic activity actually takes place in the jurisdiction
Significant profits may be ‘located’ in the jurisdiction

31. Taxation and Social Responsibility
What is the relationship between tax and social responsibility?
Tax and social responsibility in the private sector
Tax and social responsibility in the public sector
Tax and social responsibility beyond the private and the public sector

32. Responsible Taxation
Social contract between State, organisations and individuals
Legal versus ethical
The legal framework of taxation
Scope for ‘moral’ decisions within that framework
Does transparency encourage ethical behaviour?

33. Taxation and Sustainability
Taxation is used to fund society
Organisations choose other social responsibility activities and investment
Governments utilise taxation receipts
Organisations cannot control how taxation paid is utilised
Taxation is required to fund Government sustainability

34. Tax and social responsibility in the private sector
Who benefits from tax avoidance?
Who suffers because of tax avoidance?
Stakeholder perspectives
Who we consider to be stakeholders
Paying a fair share
What is fair?

35. Tax and social responsibility in the public sector
Governments are responsible for creating a tax system
Balancing different objectives across society
Tax as a ‘charge’ for public resources
Challenges of designing a fair system

36. Tax and the social responsibility of other organisations
Do social enterprises meet their social obligations through other means than tax?
Should the tax system be different for the not for profit sector?
Do these organisations have a different attitude to tax?

37. Cooperatives and Family Businesses
Often small and simple
Tax savings schemes are unavailable and/or unappealing
Family owned firms less aggressive in tax planning (Chen et al, 2010)
Cooperatives owned by members
Ethical objectives
Community beliefs
Cooperatives support and pioneer the ‘Fair Tax Mark’

38. Fair Tax Mark
Method to promote fairness and transparency surrounding taxation
Organisations may display the ‘Fair Tax Mark’ once they are an approved member
Applications are subject to evaluation against criteria surrounding tax policies, accounting and tax behaviours and responsibility

39. Summary and Future Directions
Taxation is a social contract between governments, organisations and individuals.
Legal tax planning is legally acceptable but socially unacceptable to many members of society.
Fairness in taxation is increasingly important to society
Ethical and moral behaviour is expected as part of compliance
Raising or reducing taxes in one sector may equally advantage and disadvantage.

40. Summary and Future Directions
Taxes must raise enough funds to avoid austerity, whilst also achieving competitive sustainable economic activity.
Tax systems should be clear, fair and effective.
Increased tax transparency is required locally and globally